With all the talk about low interest rates helping those refinancing, and prompting renters to compare the cost of renting to owing, we thought it would be smart to remind our brokers about closing costs. JMAC’s brokers coach their clients all the time on this, but it is helpful to revisit from time to time. Closing, or settlement, is the final step in a real estate transaction and is where ownership is transferred, or the refi loan process ends, and documents related to the sale and mortgage are recorded in the local city or county. There are closing costs on all-cash deals as well.
Lender charges usually include origination, processing, and underwriting charges, points which can be thought of as prepaid interest used to "buy down" an interest rate, any per diem interest (interest charged for the days after closing, yet before the first scheduled mortgage payment).
Our brokers know that lenders don’t create all the expenses. Third-party service providers will charge for items such as the property appraisal, survey and elevation certificate, credit report, insurance (such as property hazard or flood), title company or attorney fees for conducting settlement, title search, title insurance and endorsements, inspections - (home, well, septic, pest, etc.), real estate commissions (usually paid from seller's proceeds), and HOA or Condo Association application and transfer fees.
But there’s more, regardless of lender. These can include government, city, or county charges such as property taxes, documentary stamps on deed and mortgage, recording charges, transfer taxes, and a possible host of other charges.
JMAC’s brokers also know that closing costs cannot normally be included in the loan amount on purchases, which is why lenders need to know that buyers/borrowers have their own money available to pay them at the closing table. Some government-insured programs do allow certain closing costs to be included in the loan amount, and seller contributions or concessions to closing costs can help make a deal go through that otherwise may have stalled or failed. On the other hand, refinancing borrowers may usually wrap these costs into the loan amount - as long as the overall Loan-To-Value (LTV) stays below the maximum ratio allowed for that loan program.
Our brokers are welcome to ask our AEs about closing costs – we don’t want any surprises when your client’s loan funds!